Australia’s economic recovery is on track despite growing global uncertainty surrounding mounting sovereign debt in Europe and a stagnate US economy according to a report published by global rating agency Standard & Poor.


“Unlike most advanced economies, Australia is facing the external and domestic challenges from a position of relative strength," Standard & Poor's credit  analyst Kyran Curry said.


"It has wide scope for easing of fiscal and monetary policy to respond to these risk factors should they eventuate. And what gives us more optimism about Australia's near-term growth outlook is that sound  domestic demand, relatively healthy corporate and household sectors, plentiful  external liquidity, and high domestic savings rates are supporting the  economies of its key trading partners.”


The report assesses Australia’s recent economy performance and national debt position, as well as discussion the major factors that threaten the growth prospects of the country and its crucial trading partners. Standard & Poor has announced it predicts the economy to return a 2 per cent overall GDP growth for the 2010-11 financial year, followed by a 3.8 per cent growth rate in the 2011-12 fiscal year.


"An unusual confluence of opposing economic forces have made  Australia's economic growth outlook uncertain. On the one hand, high prices  and robust demand for commodities, plus a very strong pipeline of business  investment, are strongly supporting the growth outlook. On the other, global  financial market instability and weaker growth prospects in Europe and the  U.S. could ultimately restrain demand for Australian exports. Rising global  inflation also threatens to undermine the economies of the country's key Asian  trading partners: China, Japan, Korea, and India,” Mr Curry said.
The positive findings on the Australian economy come as the agency warned that Australia’s banking sector is highly exposed to falling levels of global liquidty conditions and negative swings in consumer sentiment.


"The (Australian) banks are highly leveraged and are exposed to shifts in investor sentiment and tightening liquidity conditions. While we are not seeing that now, the risk is there and it just won't go away," Mr Curry said.


The full report can be purchased here